Finance Products

Personal Contract Purchase

Personal Contract Purchase (PCP) offers a flexible and cost-effective way to finance your next vehicle. Here. we’ll explore how PCP works, its key benefits, and what to consider before entering into an agreement. 

What is Personal Contract Purchase?

Personal Contract Purchase, commonly known as PCP, is one of the most widely used vehicle finance arrangements in the UK, and for good reason. It offers lower monthly payments than Hire Purchase, and genuine flexibility at the end of the agreement. 

Rather than financing the full value of the vehicle across the term, PCP involves financing only the depreciation, the difference between the vehicle’s value today and its projected value at the end of the agreement. The remainder, known as the Guaranteed Future Value (GFV) or Optional Final Payment (OFP), is deferred to the end. 

How Does Personal Contract Purchase Work?

A PCP agreement involves three main elements:

  1. Deposit: You’ll typically pay an upfront deposit, often around 10% of the vehicle’s value. A larger deposit can reduce your monthly payments.
  2. Monthly Payments: Payments are calculated on the depreciation of the vehicle over the term, typically two to three years. 
  3. Optional Final Payment (OFP): At the end of the term, you have the option to pay the balloon payment, which reflects the vehicle’s predicted value, to take ownership. 
Personal Contract Purchase (PCP) infographic

End-of-Term Options

At the end of your PCP agreement, you have three options:

  • Keep the Vehicle: You can pay the balloon payment and take ownership of the vehicle. If the payment is too large to cover in one go, refinancing options may be available. 
  • Return the Vehicle: Hand the vehicle back to the finance company with nothing further to pay, provided the agreed mileage limit has not been exceeded, and the vehicle is in acceptable condition. This is a genuine option, not a fallback. 
  • Part-Exchange: If the vehicle’s current market value exceeds the OFP, the difference is equity, and it belongs to you. This equity can be applied directly as a deposit against your next vehicle or finance arrangement. 

Be mindful of mileage limits in a PCP agreement – exceeding these can incur extra charges.

For clients who prefer not to be locked into a single outcome, PCP’s three end-of-term paths offer a level of financial optionality that Hire Purchase and Lease Purchase do not.

Key Benefits of PCP

  • Lower Monthly Payments

    Financing only the vehicles depreciation, rather than its full value, results in meaningfully lower monthly payments, making premium vehicles more accessible within a given monthly budget.

  • Guaranteed Future Value

    The OFP is fixed at the outset of the agreement, protecting you from uncertainty around depreciation. Whatever the market does, your balloon figure does not change.

  • Access to Higher-Specification Vehicles

    The lower monthly cost structure of PCP regularly enables clients to finance a vehicle of higher specification or value than would be practical under Hire Purchase.

  • End-of-Term Flexibility

    The choice to own, return, or part-exchange means PCP accommodates changing circumstances and preferences in a way that other products do not.

Considerations of PCP

  • Mileage Limits Apply

    PCP agreements include an agreed annual mileage allowance. Exceeding this can result in excess mileage charges, calculated per mile above the limit. It is important to set a realistic mileage at the outset.

  • Condition Requirements

    The vehicle's projected future value assumes it will be returned in good condition, within fair wear and tear standards. Damage beyond this may result in charges.

  • Deferred Ownership

    You won't own the vehicle during the agreement. If long-term ownership from the outset is the priority, Hire Purchase may be more appropriate.

To explore Personal Contract Purchase options through our panel of lenders, apply online or contact the Premier Specialist Solutions team. 

Sell Your Car
Showroom
Finance
Instagram Linkedin Envelope

Premier Specialist Solutions LTD is registered in England and Wales.

Company Number 15670030. FCA registration number 1042733. ICO Ref ZB739428

Privacy Policy 

Website Design by Dacres Digital Co.

Scroll to Top